Earlier this year, Netflix announced they would add a lower-priced, ad-supported subscription tier to their offerings, and they are one step closer to making that a reality. Though they were wooed by others, the streaming entertainment company has selected Microsoft to be their exclusive advertising technology and sales partner.
“Microsoft has the proven ability to support all our advertising needs as we work together to build a new ad-supported offering. More importantly, Microsoft offered the flexibility to innovate over time on both the technology and sales side, as well as strong privacy protections for our members,” said Greg Peters, Netflix chief operating officer and chief product officer, in a July 13, 2022 blog post.
The ad-supported tier is expected to roll out in early 2023, and Netflix will give subscribers a choice of three ad-free tiers, or the new ad-supported subscription tier, each with different price points.
“It’s very early days and we have much to work through. But our long-term goal is clear. More choice for consumers and a premium, better-than-linear TV brand experience for advertisers. We’re excited to work with Microsoft as we bring this new service to life,” Peters added.
Microsoft announcement
Mikhail Parakhin, president web experiences for Microsoft, also made an announcement about the partnership.
“We’re thrilled to be named Netflix’s technology and sales partner to help power their first ad-supported subscription offering,” Parakhin said. “At launch, consumers will have more options to access Netflix’s award-winning content. Marketers looking to Microsoft for their advertising needs will have access to the Netflix audience and premium connected TV inventory. All ads served on Netflix will be exclusively available through the Microsoft platform. Today’s announcement also endorses Microsoft’s approach to privacy, which is built on protecting customers’ information.”
“This is a big day for Netflix and Microsoft. We’re excited to offer new premium value to our ecosystem of marketers and partners while helping Netflix deliver more choice to their customers,” added Parakhin.
Ad-supported subscription tier will not have all shows
Not all Netflix content will be available to users who sign up for the ad-supported subscription tier, said Ted Sarandos, co-CEO and chief content officer for Netflix, on the company’s July 19 earnings call.
“Today, the vast majority of what people watch on Netflix, we can include in the ad-supported tier,” Sarandos said.
However, there is content licensed through U.S. studios and international distributors that they may not be able to include in the ad-supported subscription tier for contractual reasons. Sarandos said he didn’t think this was a “material holdback for the business.”
“Great entertainment value”
On the earnings call, Peters said that they believe Netflix provides “great entertainment value” and the coming ad-supported subscription tier gives consumers more choices.
“We try to provide a range of price points to consumers around the world to make sure that service is accessible in the current environment,” Peters said. “I think our ad-supported offering is an extension of that sort of pro consumer, wide range of prices that will increase accessibility of the service, especially in the years to come.”
Peters also said they plan to provide “an incredible experience” for brands and advertisers.
“I think when you look at the scale of our offering, the technical DNA we have, the partners that we’ve got lined up, I’m pretty optimistic that over a couple of years, we can deliver an experience which is fundamentally different from the ad experience on linear in a way that supports all of the stakeholders,” Peters said.
Insider Take
While Netflix has resisted an ad-supported model for a long time, there doesn’t seem to be any downside. Viewers will have more choices at various price points, which could appeal to a new set of prospective subscribers. On the subscription side, Netflix has secured a reliable, innovative technology partner to help them navigate the advertising terrain to further monetize their streaming service and make them less reliant on subscription revenue. And Microsoft gets a lucrative, exclusive contract to work with the biggest streaming entertainment service around.
